COVER STORY: 40 million Aussies? The immigration debate revisited

by Max Corden

News Weekly, November 29, 2003

Professor Max Corden, a member of the Productivity Commission, recently delivered the inaugural Richard Snape Lecture on Australia's immigration policy. This is an abridged version of his address, to which Colin Teese replies here: RESPONSE: No immigration policy without industry policy.

Australia's total fertility rate (number of births per woman in her lifetime) has been declining since the mid-1970s, and especially during the nineties. It was 1.89 in 1992 and in 2001 was 1.74. A reasonable estimate is that it will fall to 1.65. That would still be higher than in many European countries.

At present, births nevertheless exceed deaths - that is, the rate of natural increase is positive - because of the earlier baby boom that has raised temporarily the proportion of women of childbearing age. But this is likely to change around the mid to late 2030s, when the rate of natural increase will turn negative.

From then on net migration will have to be positive just to keep the population constant, and any increase in the population must come solely from net migration.

This simple fact or estimate, based on reasonable assumptions about Australia's future fertility and mortality rates, quickly persuaded me to put a question mark in the title of this paper.

In other words, if the population were to reach forty million any time this century it could only result either from a drastic reversal of the decline in the fertility rate or a very large increase in the rate of net migration from the current level. I shall come back to this extremely important issue later.

With this background, let me come to the immigration policy debate. I find a classification into three approaches helpful.

The conservative approach

The first view - which I believe to be widely held - can be crudely summarised as follows. We are happy as we are. Why should we have bigger, more crowded, cities, more sprawl, more people on the beaches?

Australia is a great country and gives us a great way of life. Some would say it is "the best in the world". We like our big gardens, our single storey houses, our freedom to build where we like, and our wide open spaces. Why change?

Perhaps we once needed some population growth, but now it is time to stop. So keep the population constant or, maybe, keep net migration down to zero. Why go through the inevitable changes that migration and population growth bring?

The motive for this view may be a concern about the environment, a fear that immigration increases unemployment, or just plain dislike of changes. In the last case it is truly a "conservative" view. I do not personally subscribe to this conservative approach, but I believe it is widely held.

The pragmatic approach

The next approach, the Pragmatic Approach, must inevitably play a big role in determining government policies. I believe it does so to a great extent at present, more so that in earlier years. The pragmatic approach has two elements.

First, it focuses on short-term effects, especially effects of immigration on the labour market and on social strains. There is a particular concern to minimise the period of initial unemployment suffered usually by new immigrants.

This leads to the emphasis on bringing in not just skilled migrants, or migrants with a high level of education, but specifically migrants with skills that are currently in high demand in Australia. Is this emphasis really a good thing? I shall return to that later.

Recently I have seen mention of accountants, IT professionals and nurses. Current policy has in this respect - in avoiding longer-term unemployment of new migrants - been very successful.

Second, policy responds to various pressures and interest groups. I do not think I need to elaborate here. Conservative-minded public opinion is one of these pressures, and migrant organizations interested in family reunion visas and businesses benefiting from growth are others.

Now, in my view the pragmatic approach on its own, with its short-term emphasis, is not enough. When net migration is around 0.5 per cent of the population in any one year, as it has been in recent years, one would not expect many significant short-term effects, other than on the migrants themselves. But gradually effects accumulate, so it is important to think about the long-term implications.

I am not saying that the Government is not considering long-term implications. Forecasts of population growth based on demographic estimates of fertility and mortality trends, and assuming various rates of net migration, are made.

I have seen one Department of Immigration projection, with assumptions carefully stated and hedged, which assumes net migration (NOM) of 100,000 a year over the next 50 years, and projects a population of 25 million to 27 million by 2050, and then remaining relatively stable to the end of the century (DIMIA 2003). One might use this as a reference point for considering long-term implications.

What are the likely effects of an increase in the population from about 20 million currently to 25 million? And what, for example, would be the implications - and indeed the arguments for and against - of a doubling of the population over that, or a longer, period, i.e. to 40 million?

Radical Approach

This leads me to the third approach - the Radical or Expansionist Approach. Here one envisages an eventual increase in the population to 30 or 40 million.

Let us now consider the implications of the population doubling from 20 to 40 million. My discussion is primarily qualitative and very general, so the same issues arise in a move from 20 to 30 million, for example.

One cannot defend the case for immigration and higher population just by showing that arguments against an expansionist policy are weak or inconclusive. One has to have an argument for immigration.

If arguments on both sides were weak, then the conservative position must surely win. All changes are potentially troublesome, even if they take many years to come about. And why should we let in every year many foreigners to join our happy national family if there is not a strong and conclusive case that we will benefit as a result?

Hence I now come to, what seem to me, the three crucial arguments on which a radical (i.e. expansionist) approach must be based.

The first argument is the good old "populate or perish" argument. This was explicitly the motivation for the great Calwell post-war migration program.

But, does it still make sense? In relation to the vast populations of China and Indonesia it hardly seems to matter whether we are 20 million or 40 million people.

It is not population but the size of the economy that matters, or may matter. We do not know exactly what kind of threat to our security, if any, we will face, and it is now widely accepted that the likelihood of straight-out invasion is low or zero.

All one can say is that defence, whether forward defence, defence against terrorism, or whatever, costs money, and the need is unlikely to increase with population, but the capacity to pay for it will. Perhaps, in the case of terrorism the cost of defence may actually increase with population, but leaving that possibility aside and assuming that there is a given cost of defence, however determined, it will be a lower cost as a percentage of GDP the larger the workforce.

Furthermore, I have no doubt that Australia's influence, whether in the region or the world, would increase if it were a substantially larger economy, able to provide more funds in aid, in contributions to international organisations or in joint international action Finally, focussing specifically on international economic policy and negotiations. Australia will carry more weight when it is a larger market for other countries' goods.

The second argument for a radical approach to population policy is economic, in the broadest sense.

A larger economy allows for utilisation of economies of scale in goods and services that are not traded internationally. This includes transport and communication services, and public administration.

Furthermore, it allows for more variety of products and hence greater available choice. In addition, by allowing for more producers who produce at reasonable scale levels it makes possible a more competitive environment. It also allows for more network economies. All this does not apply to goods and services that are internationally traded at (close to) world prices.

The net effect is, other things equal, to raise the standard of living (per capita GDP). The experience of Japan, and indeed many other countries, also suggests that a large home market can provide a platform for a take-off into quality exporting.

This argument is particularly applicable to a country, such as Australia or New Zealand, which is in a remote location.

What is internationally tradable in the Netherlands (a country with an economy of similar size to that of Australia) is not so readily internationally tradeable (with low transport costs) in Australia.

The special feature of Australia and New Zealand compared with European countries or Canada is the tyranny of distance. Cheaper air fares and faster air travel, email, and the Internet have not overcome this. It seems to me that the relative geographic isolation of Australia provides a strong case that a larger population and hence economy would be beneficial.

Of course, at some stage diminishing returns, principally through environmental and congestion effects, will dominate these economies of scale and diversification effects. In my judgement, and it cannot be more than that, this would not happen much before the population doubled again.

As I have already pointed out, if the future population is to rise to much above the 25 million where net migration at the recent rates would bring us, then the net migration rate would have to rise substantially. This means that we would need to have a much larger migration program. Would that be politically acceptable?

Public opinion polls in the past have shown that rarely does a majority of the public favour higher immigration, and more often has wanted immigration reduced. An exception was the period immediately after the last war when the "populate or perish" motive was widely accepted, and even then the public wanted primarily British migrants and not the multicultural mixture (with the British still the largest part) that the Government actually brought in.

Much has been written on this divergence between public opinion and government policy. The interpretation of opinion polls is often not clear, and answers depend both upon the way questions are framed and the information that the respondents have. It seems that often the public has been happy in retrospect with earlier immigration - which it had opposed at the time - while it was opposed to levels of current immigration. Governments have been, and may in the future also be, ahead of public opinion.

In addition, there are the probable benefits to be derived from immigrants with skills, a work ethic, and education. The concept of "skills" should not be too narrowly interpreted, nor should one take too narrow a view about the need for assimilation by the first generation of immigrants, or even the second. Lessons here can be learnt from the United States.

In my own judgement, a substantially higher population attained within a period that allows plenty of time for adjustment, would be highly desirable. But the real constraint comes from the combination of two factors. First, there is the trend decline in the total fertility rate. Second, there is the political difficulty of bringing about the substantial increase in the rate of net migration that would be required. This difficulty, in turn, results from the combination of the conservative approach to immigration policy by the public and the pragmatic approach by governments.